cuts at the federal and state and local level. add another 8-10% to this. this means the inability to respond to a range of public health emergencies and effectively. it means delaying and doing a lot of things. there are thanks so much for talking with us. we now go to the hudson institute for a segment on the future of rural telecommunications. >> thanks to the good folks at c-span for carrying today's event live and we also welcome the viewers online. the hudson institute is a future oriented international policy research organization designed to promote ideas that promotes security, prosperity, and freedom. ever since our founding in 1961, the institute has been focused

in part on how technology comes to shape the future. and perhaps no area has been more transformative than the information and communications technology, in the past half century. disbursement of these technologies is not always been equal throughout america. today we will address how the spread of technologies has varied between urban and rural america. we will unveil a new study that my colleague hanns kuttner has produced that indicates there is clearly a broad band gap between urban and rural america. what that gap means for our economy will be a central question for us today, which is why we are in part holding this -- in part calling this an economic forum on the future of rural communications. first, the executive director of the foundation for rural service will offer remarks. then we will hear from heinz hanns kuttner.

then i will moderate a panel discussion about rural telecommunications, and then questions and answers from the audience. now let me begin by introducing elizabeth proctor, executive director of the foundation for rural service, the philanthropic arm of the national telecommunications cooperative association. she oversees a wide variety of programs ranging from you-based initiatives and educational materials, and consumer awareness of rural economic development. she worked for senator joseph lieberman, secretary of energy bill richardson, at the white house, as well as at a foundation. please give a warm welcome to elizabeth crocker, ladies and gentlemen. [applause]

>> thank you so much. welcome, everyone. i was looking around the room and thinking we have such a variety of folks. people from usda, from the farm bureau, and it's indicative of the issue, because it touches many different industry sectors. it's nice to have you all here. thank you to everyone in the room and everyone watching on the web and on c-span. we are a 501 (c)(3) non-profit and are dedicated to improving lives in rural america. we're also dedicated to making sure all americans have a central telecommunications service. essential is the key word because that's a moving target over the past couple years. it changes rapidly. what people needed five years or 15 years ago is not what they need today. broadband has become an absolute crucial part of doing business in everyday life.

i personally think a lot of local telecommunications providers around the world to a investing.in but there's a lot of uncertainty. if they cannot grow, there will be a broader gatt. we said we really need quantifiable research on this topic, to know exactly what we're looking at and what the challenges are. there's a lot of great opportunities out there. we produced two papers this year. the folks from the farm bank helped us on that one. we will do more because we think it's such an important issue. there are so many opportunities for innovation and new applications that we cannot leave folks behind. there's a widening gap and we sure we are dealing with it. we approached hudson with this a few months ago and hanns has

done a wonderful job. we're happy to have him present in the study. he is a visiting fellow at the letson institute and is working on its future of innovation and ififth initiative. -- future of innovation initiative. we are thrilled to have you here today. i will turn it over to you. >> thank you, elizabeth. if you are joining us remotely, the paper is available at hudson's website. we will have questions and answers as well as discussion with the panel. if you want to join in on that, you can do so via twitter or email.

and we will have a chance to let you be part of this. thanks to a wonderful abundance of broadband service where you are. if you don't have the service and cannot take advantage of these options, perhaps some questions will come up in the course of the panel that will give you an idea of what you have to look forward to. ourverview, let's focus on historical moment. not long ago, the primary telecommunications service in this country was you pick up a phone and your dialtone and dial in number. that's not true anymore. internet connections is the dominant use now. back when dialtone was the focus urban andm, ke rural areas were imperative. but with the internet it was no longer one service level.

unlike "the voice, which delivered one level of service, internet access is at multiple levels of service. who here ever used dial-ip access to the internet? we are dating ourselves because a lot of hands went up. it was really not long ago. there are still some people for whom that is still the name of the game. technology has come along and pushed back into our collective consciousness. the new technology requires different and more infrastructure. in order for service to increase beyond dialtone, investments must be made. we see a pattern of large investments have been made in urban areas than in the rural areas. the result was the opening of an urban role divide in the level of service. clad in a sense of how much we are talking about when we talk about rural.

we will see data over the course of presentation. in the first set of comparisons, 81% live in urban america and 19% live in rural america. so here is the first look at the broadband gap. what we are looking at is the level of service that are available. the upper line will tell us about what's available in urban areas. the lower line is what's available in rural areas. the bar in between them and is the size of the gap. the key idea, you will have to squint if you want to see the top line getting away from 100. in urban america, virtually everyone has download speeds of up to 10.

just to show what this might mean, i brought with me a dvd. it can hold 4.7 gigabytes of data. if you want to download all the data from the spur and you had dial-up service, you'd be there about 200 hours waiting for that process to unfold. if you were at 10, you would be down to an hour and six minutes. that's what we are talking about as far as what the numbers relate to. to's go into a little closer get our scale little better so we can finally see the urban areas getting away from 100% and . at the -- at 1.5, we've got urban america at 100%. pro-american at 95.2%.

-- rural america. and by the time we get up to 10, the urban is only down to 98.7. the bar is 27.3% gap. beyond that, we start seeing a falloff in urban areas. as the broad band gap we are focusing on today. the key issue for understanding what is happening, what is motivating this, its population density. that's why understanding this gap requires looking at the facts about population density. when we talk about economic measures, the unit of measure is dollars. when we talk about population density it, it's in terms of

populations per square mile. density matters because if the cost per person scriber is the total cost divided by the number of people, and the total cost, how much fiber you have to run, how long a conduit has to run, these are the things that create it. the pictures show how different the conditions are in the united states. in manhattan is perhaps the densest in the united states. and in wyoming on the other side where there is the lowest population. in new york city, the level, we would not even have a skill because everybody would be high up. the cost of the infrastructure per customer would not show much variation. has a broad band gap.

more in tuition. here's a comparison of the united states and it shows how different we are from other large prosperous countries and why we have a challenge that maybe some other wealthy countries don't. in india the population density is almost 10 times that of the united states. in europe it's about five times that. then there's the u.s. one of the country's less dense than the us is canada. for the most part, the united states is at the low end of the density scale. that's why in some ways we have a peculiarly american problem. then we have new jersey and

rhode island as the most dense states at 1200 people per square mile and new jersey is more dense than india. the state that's closest to the averages missouri. the state that you can barely see the bar is not because of the color of the image but because there are so low levels of density relative to the high- density states. south dakota it is 10.9 people per square mile or wyoming, 5.9% people per square mile. it cannot be seen if that's the level of difference we have in the u.s. finally, population loss. one thing that's going on is you are thinking about i will invest in something and investment decisions will be motivated by expectations of the future. if you think there will be fewer

households in the area you might be serving, that's another thing that could make you think twice about what you will make investments in today. let's put some facts about the economy together with the facts about population density. let's look at how economic activity varies with a population density. what we see here is a comparison across three levels of population density. urban and then roll. one is the more dense rural areas where population is about 25 people per square mile. and in areas where population is below that threshold. dividing it up gets that pattern going, makes the pattern more visible. we are starting on the left. the service sector is the largest area for employment across the geography of our economy. it's a very diverse sector running from offices to corner diners.

offices to cornerlaw diners. manufacturing has a different pattern. most important in the relatively higher density rural areas. think small town america. that's where manufacturing plays a relatively large role it in the local economy. they probably will have a better chance to be in those places which are going to have relatively better broadband access in the rural areas. on the right is agricultural, fishing, and mining. mining includes energy extraction kind of things.

that follows also the pattern of rural america has a monopoly on these activities. if you are going to engage in oil production or running a wind farm and your idea of how you are going to make your business process most efficient, involving tele-communications, getting information to change the blade of a windmill because the wind direction changed or because you know from sensing devices that there is about to be a change and to be prepared for that, you require this kind of infrastructure, this kind of capacity. even though the heading is agriculture, it's all these kinds of extractive industries. the lower the population density, the relatively more important this sector becomes. in those sectors, the ability of

the economy overall to do better in these areas is a function of the capability in rural america. that is important. going on to thinking about the future economic impact, from the national economy from the broadband gap, we have to think about two issues. one is the impact on the local economy from the broadband gaps. that is a cost to you oftentimes. if you cannot use the social media or you cannot use the internet in certain information, it is a cost to you. not necessarily the cost to the national economy. if the national economy would think about what's gone to be the impact of not having broadband access, it will affect how mobile and activity is.

if the activity we are thinking about involves land, land cannot move. things that involve agriculture, the extractive industries, they are fully dependent upon rural america. at the other end of the ability potential, there are things that don't yet exist. a new plant or a new facility. if a new facility goes to one rural community rather than another, that definitely costs one community but not necessarily costs the national economy. this activity is still taking place in one place rather than that placed. -- place. let's start with cost to people. this notion of what is the impact on people? people are fixed in these locations for the short term.

if you live in a place where you are not able to areit, that is a cost to you. versus if you are thinking about where to locate a business, you can go for one of the places where there is higher service. you could still be roll and get service - be rural and get service. for people who are consumers, the emphasis is on present usage. when we think about the economic impact, we need to think about future usage. that's why when the highest potential impact will come from the education side, while the current emphasis is on k through 12 schooling and such uses as bringing classes to rural

schools that otherwise would be a too small to offer a course, such as an advanced placement calculus class because only five kids want to take that class this year. on a going forward basis, the largest opportunity is in post secondary education. while the gap between urban and rural areas and high school completion has closed, it has widened in post secondary education. we had 9.5 percentage gap between urban and rural areas and by 2009 we are up to 12.6% percentage happened terms of a college graduate in urban and rural areas. this has substantial economic impact. you take the gains per people who have a college educated obverses a high-school educated

job -- over a high-school educated job. education floats to the top of the list in terms of the economic impact on households because of a lifetime earnings possible. broadband access could lead to different levels of education able to be achieved. those living outside urban areas have an interest in seeing that kind of gap closed because higher income means a higher tax base and that impact is felt well beyond households which are living in rural areas. it will have a large effect on what higher education means in the future. degree and receivseen

certificate programs that don't have campuses and can be obtained entirely on line. they are very important for nontraditional students. people will find themselves in jobs where advancement depends on their ability to get their credentials. that's the area where there is perhaps the largest potential for household level impact. health is on the list because the future offers so much more than the present. services are a larger share of are urged to and economies is because their health care delivery is concentrated. -- the reason there's a larger share of services is because the health care delivery is concentrated. robust broadband is indispensable to telecommuting.

there could be a loss don't at the level of the national economy. finally, broadband will determine how well rural populations are able to take advantage of electronic commerce and electronic services. a number of people in rural america are not part of the market for electronic commerce and electronic services. you can think of bringing broadband to some of these areas being a lot like finding a free-trade out and taking down a trade barrier. bringing people into the market for services. on the business side, we need to begin with information communication technology, how it is linked together as one industry. information gets created and gets manipulated and often times in that process there has to be -- data has to move from one point to another and that's the role of telecommunications and

information and communications technology. supply chain systems often start with data from store scanners coming into a central data warehouse and then the communications technology has to move the data out to a decision maker who might be a buyer or a supplier to some way implement that decision. the economic impact comes about with broadband has a limiting factor. when the information technology can accomplish what it needs to but is being held back by the availability of the data moving around. we are in the midst of rapid innovations in these technologies, driven by changes in relative prices. computingen a drop in costs over the last three years. now the cost per calculation is 1.001 of what it used to be.

we are coming to places where the availability of the telecommunications technology to get the data moving limits the effectiveness of that technology. thinking about how that relative price change is so important for the economic consequences, thinking about the logistics operations. you have a fleet of trucks and a clerical job has been every day to figure out here are the orders we have and these are the trucks available and to figure out which truck will do what. you could say you could hire 10 clerks and that way you could have -- take advantage of the order flow coming during the course of the day and optimize. we have additional orders today that we did not know about, so we will do things a little differently. you never do that because the cost of hiring posts and people

is so great. that has. fundamentally has that has fundamentally changed. we don't need to have these 10 people. the limiting factor comes not at the cost of the people you would had to have hired but rather the physical limitations of the telecommunications capability available to you. going through some sectors, in the last century, productivity gains in agriculture have been part of the amazing story to the american economy. it relates back to better speed and mechanization. where are the future gains going to come from? we spoke about the relative importance of the world economy. it's going to come from the evolution of agriculture as a cyberphysical systems. what does that mean?

a group at the university of illinois suggested the future of a tractor. it would be booked to see, use common sense, and store and transmit data. -- it would be a vehicle that would see, use, sense, and store and transmit data. which fertilizers would be applied at what rate. it's going to be constrained at some level by the physical and telecommunications capability in those areas. manufacturing, it requires

thinking about the distinction of the nefarious of haves and have-nots. you can solve the problem of rural constraint by saying we will go to a place that does have this available. if you are 1-location firm, you are stuck because you are where you are. and you're not likely to change. especially, small manufacturing firms. services, rural america has proven to be a middle shore for the information technology community, which has long been ing, turning offshorein to russia or india because they can get labor at a lower cost than in america. smallera rise now of

sayanies in the u.s. backethat it will cost more than to get this outsourcer to india or to russia, but we will cost you less than it would be if you used the kind of people you would be hiring if you were in downtown chicago and paying those rates. the firms are relying on underutilized human capital, or their strategy is we find people in rural america who have human capital beyond what local labor market can find for them. we are going to focus on aptitude and invest in its people and put them to work as it developers. the notion is that we might lose some of them because they might get the idea that rather than doing this, i will move to st.

louis and take a job. but if they have enough people because of the family connections to the small town, but they assume they will stay there. that fact will give them the access to a niche where they can tough it out in between the large it company and the offshore. this will depend on the telecommunications structure in that community for that business strategy. then the health sector, tele medicine offers convenience for the patient. the offer radiology services in oklahoma and they cannot have the people driving 50 miles and

for even less available services such as psyche services, instead of driving 160 miles. urban hospitals have such great demand. looking at 44 hospitals in rural oklahoma, 13 reported the speed available to them was below the broadband threshold. in the future that would call into question the viability of these hospitals as institutions. if it means a hospital has the ability to get records moving at certain speeds and the data that will be moving around in the health care system. we do have brought them back between -- we do have a broad

band gap between urban and rural america. the national economy loses out on opportunities as a result. like selling goods and services. the ability to break down barriers. and to expand the american economy into those areas. if the opportunity for workers to gain skills, education opportunities that will involve virtual classrooms. and then missing out on the opportunity for processes to become more efficient. i will conclude with that and we will move on to questions and answers. submitting questions, you can do that through twitter and through e-mail. and we have our audience anxious

to ask questions. anyone wanting to start? in the back? >> could you pull up the slide between the rural and urban? i wonder how different that slide would be if you took out all the small towns of 1000 and above? if you included -- separated that from rural residents, would that chart changed dramatically or not at all? are the small towns actually getting more broadband than this charge implies or not?

>> what's urban and once a rural? in this presentation, that comes from the national broadband map. this is their data. there taxonomy for urban and rural, if at the county level we part of athe county is metropolitan area, that's not our approach. this is to look at urbanized areas where the population threshold of those areas is going to be 2500 people more. if you are in one of those areas, you could be a county classified as rural, but it is classified as rual, yet there's a town of 3000 or 4000 or 5000 people in it, for purposes of

this classification, those towns will be called urban. so we're looking at areas which are rural in looking at the census. we will stop there. other questions? on this side. >> good morning. thank you to the foundation and to the within the institute -- and to the hudson institute. our nation has moved rapidly toward adopting a common core standards across the country and assessments are being developed for those standards now. by 2014, the assessments for children across the nation will be delivered online.

our concern for rural schools is how they will be able to access those lessons. in your study, did you look at any trends moving fort? we are two years away from that and i wonder if there will be improvements in these rural places. >> that's what our next panel will be doing. the technology will be in the panel that comes after this. any other questions or thoughts from our audience on anything in this? it could be the case -- yes? >> [inaudible] in some very rural areas that don't yet have broadband, household are able to get online using a wrecker and 3g.

is there a possibility that broadband will not be necessary because of expanding 3g? >> that in our next panel. [laughter] they will talk about that. it could be, but that is what the panel will give definitive answers about. and there's no reason why we cannot keep the world from getting to our panel. let me turn the podium back over and he will introduce them to you. [applause]

>> thank you, hanns. again, the paper is available on our hudson website. we have with us this morning three of the most knowledgeable people in the field of rural telecommunications. with us to discuss this issue in a broader capacity as well is elizabeth crocker, who you met

earlier. we begin first with larry thompson. i will introduce each of the palace. he is the ceo of vantage point solutions, a south dakota company that's one of the leading engineering and consulting firms for the rural telecommunications industry. he is an electrical and computer engineer by training and has had more than a quarter-century experience in helping role telecommunications companies discuss full of in a rapidly changing technical and regulatory environment. we look forward to hearing from larry. >> thank you, kenneth. just to give you a little bit of a background, we do engineering and consulting, wireless and wireline for 25% of the small telephone companies. we have a lot of experience in

the rural areas when it comes to broadband. a lot of our business involves getting broadband to these rural communities. a year ago i was in omaha where my parents live and we were videotaping them to better understand what it was like when they were growing up. they're in their mid-70s. we were talking about what it was like before it plumbing and telephones and electricity. they had to go to an outhouse. my two daughters were 13 and 14 at the time. they were sitting and listening in amazement about what the world was like when their grandparents were growing up. the -- it got me thinking after that, 25 years from now they may be interviewing me and their kids may be listening to my experiences growing up and wondering what is it they will find fascinating or unusual about the way it was when i was young. i have to believe it's going to

be things like the fact that we were not totally connected from a digital perspective growing up. we were connected when it came to plumbing and telephones and things like that, but we were not connected in the sense that they will be connected to the global internet and have instant access to communications. when i was young, we thought having a 20-year-old set of encyclopedias was a great source of inspiration. they will not feel the same way. when i was in college, communication was slow. my main source of communicating with my parents was sending a letter. they often times did not know when i was doing in college until week or two after the event, which sometimes worked to my advantage. [laughter] but the reality is today my grandparents and my daughters can see in almost real time and

participate in their lives by video and photographs that my wife updates to our facebook page almost continuously. the way we communicate today is dramatically different. because of the fact we are also immersed in cultural changes, i think we forget how quickly it has happened. facebook was only invented eight years ago. today they say they have 1 billion active users. youtube was seven years ago. they. 72 hours of video that is being uploaded to youtube every minute. -- they have 72 hours. six years ago is when twitter started. there were 10.3 million tweets during the presidential election alone. a lot of these things have shaped how we communicate and our culture a lot of ways. to be an effective communicator

today, two things have to be true. it has to be immediate. we cannot tolerate the delays we did in the past. and pass an average content. photographs and videos are becoming the norm. regardless if it's between a student and professor or between retailer and a purchaser of the product, a studio and their audience, or however it may be. when we talk about broadband, everybody's definition is a little different. from my perspective, it is and always on thing. i've heard politicians and attorneys argue about what should be the minimum broadband standard and things like that. i will not get into that debate. from my perspective, as an engineer, no matter what threshold you set, tomorrow is going to be to slow. if you are going to design your network around today's standards or even the standards in the near term, you'll end up redesigning your network time

and time again, which may be good from an engineering perspective but not from a public policy perspective. not long ago we thought isdm was a lot of speed at 28k. i remember in the dial up modem days, i would usually assume for meg it would me1 take 20 minutes as a rule of thumb. ipad and it would my have taken 10 days to upload prior. the average speed in the u.s. now is over 27 megs download. that is heavily dominated by the urban areas, but we're talking about the urban and rural/.

so broadband is the solution in the sense that it really is what will eliminate these herbal and roll divides and give everybody an opportunity. i have lived in los angeles and in south dakota. last night its population in 2010 was 6. that is rural. living in both extremes, i believe the rural people need more broadband, more than urban people do, because they don't have access to the schools or the hospitals or the retailers like the urban people have readily accessible. second, broadband being the problem, the problem is not so much from a technology

perspective, because it's not that hard to engineer the broadband networks. i looked a little while ago. vantage point engineered about $1.5 billion worth of broadband networks over the last four or five years. engineering them is not that difficult. even implementing them is not that difficult. the difficulty is in paying for them. especially in the rural areas, is expensive. -- it is expensive. you look at a lot of the small telephone companies that serve rural areas, although they have been pretty good about putting fiber in their network, they still have a lot of copper. the last time a lot of these companies had a major upgrade is when they went from multi-party lines to a single party lines. a lot of these loops are very long and most of them rely on dsl technology that has limited

distance. with copper it is less broadband capability. when i was driving to the hotel last night looking at washington, d.c., some of those apartments i was seeing, and sure, house more people than a lot of our clients have customers. inexpensive to serve those kinds of clients. but very expensive to go out for miles to serve some customers. we have a client in rural montana. they are one exchange with 2,200 miles -- 2200 square miles. rural. the largest driver of cost is density. we have very low density in the u.s. here. what is the solution? if you look back, we had a public policy in 1934 to get voice to every citizen in the

u.s. and we were extremely successful. ice penetrationoc in the u.s. and that was reinforced in the 1950's with advanced services that everybody in the u.s. deserve it access to these advanced services regardless of rural or urban. in 1934, the task was daunting. when you look at our vast areas. they had the commitment to be able to do it. today the public commitment has to be comparable. maybe the stakes are even higher in the sense that broadband has the ability to pull people together more than the interstate system did. so the solution is relatively simple. we need to change our public policy from focusing on a voice to focusing on broadband and move our support to broadband accordingly. the levels of support have to be

comparable, because there's no way that role consumer can afford the cost of that line. -- that rural consumer. there has to be a support network. if we move to broadband and have comparison of levels of support, i think that we would able to see broadband deployed in rural areas. unfortunately, the opposite is happening because support is tied to voice. that decline in support has been exacerbated recently rather than helped. declining voice should not mean declining support. unless something changes, i think what we're going to see is probably a shifting of costs to the rural consumers, the people that probably cannot afford it in the first place but are in the most dire need of it. most rural consumers in that

environment would not be able to participate in the new economy. a lot of the benefits discussed, the roll consumers would never be able to participate in -- rural consumers would never be able to participate in. thank you. i look forward to answering your questions. >> thank you, larry. our next speaker is greg laudeman, well-known as an analyst and commentator on rural connected. past president and board member of the role telecommunications congress and a former executive director of the technology cluster initiative at georgia tech. he has had a long and distinguished career in telecommunications working for major corporations such as bellsouth and in small businesses and as an entrepreneur and has firsthand

insight on the nexus between telecommunications and entrepreneur ships and the range of enterprises that make economy grow. >> first, i would like to say thank you to elizabeth and ken and hanns for inviting me to share some of my inside after a decade of so turning around georgia, working with roll call leaders to help them understand broadband and telecommunications -- working with rural leaders. i have a great deal of respect for these folks. although i am a technology person, i approach it from a personal standpoint, because these folks out there, they need the technology. they have so much they can do if they understand it. i want to focus on two key issues that. one is the learning challenge. there's a lot of work these

days on work force development, digital literacy, etc., very important. what i saw in my work is often times a lot of the leaders, the folks in charge of the resources, the ones making the decisions about strategy -- and with all due respect, they really don't understand the implications of the technology, how to build it into their businesses in order to be more effective. the other issue that goes along with this opportunity is the /urban interchange. it has been a zero sum game particularly between urban and wrorural. money going to the metro areas for economic development. it's been a struggle. broadband creates a situation that is important for where we

get opportunities for complementary connections between urban and rural, a knowledge interchange. the first thing that's really important to understand is this technology is absolutely essential. rural areas that don't have it will be left out and disconnected and would never have to read an e-mail or would be left out of the economy. so it is essential. just because you have it does not mean miracles happen. a number of folks have told me, one economic development person in georgia says broadband just equals economic development, doesn't it? no. you have to use it. it is not something that someone builds for someone else to do something else. you really have to think about it in terms of what are you going to do with it.

the city council in one community said we want to have wi-fi in our downtown area, we don't really know what it is, but we think we need it. so i ask, what are you + personally going to do with it? and they scratched their heads. you need to rethink your investment strategy if you don't know what you are going to do with it. something we often miss in the policy discussions is that broadband is not do anything by itself. it's important to have complementary investments in hardware, in software, its support, training. a number of rural communities, there was an importer in georgia based in england and they said we have this red hat system and we have an international connection to our facility in england, but we cannot find anyone who know red hats.

so we are paying $160 an hour went the system goes down, to get support from atlanta. so there's a huge issue with complementary investments, particularly in human capital. i just want to focus my comments on what i think are some of the policy implications and what we should be doing to address some of these issues. the key here is two players sitting on the sidelines in this but need to be actively engaged. the first is the technology industry. i am differentiating between telecommunications companies and technology companies. with all due respect to my colleagues in telecommunications,

telecommunications has not invested in research and development. the technology companies are usually invested in it and are in constant learning mode. one of the big issues is how do we engage local leaders in learning? the technology companies have to get engaged with this. a way to do it is they're all about reaching into mid market. you need to be engaged with local leaders at the rural level to help them understand how to use it. it has to get down into the organization and transform the way they operate, economically. the second set of stakeholders, and i have a great deal of respect for them, but they have been under the gun, and that is higher education. i was laid off from georgia tech a month ago because their budget has been cut and cut and cut. they have a huge commitment to

getting out into rural areas and helping people solve technology problems. it does not was economically feasible. -- it just was not economically feasible. universities that have outreach as a mission, they have a public service commission to be out there helping solve these problems. there's a beautiful opportunity for collaboration, not only with telecommunications and local leaders but the technology companies and universities can work together to get out there and really create a learning environment, create community classrooms and laboratories where we are learning about this technology and how we gain competitive advantage from it. i believe if you obtain that knowledge, you are going to create demand, and that will pull technology down into the

rural areas much more efficiently at. -- efficiently. i look forward to your questions. >> thank you. you and larry have really set the stage with some very good presentation is looking into the deep implications of the broad band gap band what needs to be done to move forward. our next speaker is harold furchtgott-roth, director of the center on the economics of the internet. he served as a commissioner of the federal communications commission. he served on the joint board on universal service, which was the subject of some discussion earlier in mariposa comments on the need for change in the kinds of subsidies for universal service that are given out. harold is one of the few economists that served as a

federal regulatory commissioner emil want to serve on the fcc. pryor, he was chief economist for a house committee on commerce and was responsible in part on the work of the telecommunications act of 1996. a special pleasure to introduce harold.- >> we may need to raise the microphone. [laughter] >> thank you, ken and hanns for a wonderful paper. i learned a lot. i'm sure everyone will. it highlights the growing divide between urban and rural america with respect to broadband. you touched on all lots of the

implications for specific sectors of the economy. you mention something i found quite intriguing that i have also focused on, which is you called the challenge of low density in america an american problem. it it is reflective of the economic history of the united states. the economic history can be summarized as what you do with a large economy that has enormous natural resources, enormous energy, a shortage of capital and a shortage of labor. the united states has been typically an exporter of natural resources and energy and an importer of labor and capital.

that's true today. there was an announcement this morning on the $20 billion investment in sprint. in your presentation there was a discussion of the high cost associated with low density. i want to focus my comments in the following area. is the lack or slow pace of broadband deployment a result of natural economic consequences? the costs too high to support the deployment? or that in so on instances, it could be government action is standing in the way of natural economic forces that would lead to greater deployment.

the description i made of the economy with enormous natural resources and energy, scarcity of capital and labor, an abundance of land but great challenges of distance. if that sounds like rural america, it is. the economic history of the united states over the past five centuries has been very much similar to the economics of rural america today. what has happened is the united states has been one of the great success stories of economic development over the past five centuries. it has worked best when individuals in private companies

have been able to understand what the prices in the market are and to react to them. it hasn't worked so well when the government intervenes and regulates activity or places taxes that create wedges between the real prices and prices that consumers and businesses face. we didn't have to look further to understand this them to look to 250 years ago, to the american colonies and what happened between 1776 and 1775. a distant government based in london imposed a series of taxes and a series of regulations on commerce in the united states. the purpose of the british government was not to punish the american colonies. it was not to harm rural america. the unintended consequence of

these actions by distant government on individuals or three of the american colonies was profound. it led eventually to the american revolution. there were great ideas by great leaders at those times. the proper way to structure an economy. the catalyst, what ultimately led people to go in that direction, to sever the ties that were very important was in fact this interruption of fundamental economic signals in the market by a very distant government that had a profound affect on a purely rural economy in the colonies. today the situation is nearly -- eerily similar.

fuel economy standards arlive ruraltantial burden to america where people have to drive great distances. higher energy costs for green energy and other purposes are disproportionately felt in rural america. energy resources are developed in rural america. the higher cost are born in rural america because rural disproportionately consumes energy. land use policies that limit the development of private land have little affect. they have a profound affect in rural america. health care -- to consolidate

his citizens -- scissions has a disproportionate effect on rural america. large educational institutions and large health care institutions can more easily to deal with washington then can small providers scattered across rural america. simply stated, when the government you rdecides to make decisions in washington, all americans suffer. those americans on the front here living in -- front tier who depend most on the clear and efficient working of property and contract rights and to suffer the most when those rights are eroded.

the disparate effect of regulation on rural areas in america it is not likely a conscious policy of the federal government. i'm not suggesting there is a policy to harm rural america. the unintended consequences of regulation in telecommunications have the precise effect of harming rural america by great uncertainty about what prices are and creating enormous uncertainty of how to make investments for the future. larry alluded to it. i would encourage everybody to go back and read section 254 and to compare that with what is telecommunications

regulations today. it is impossible to see a hint if you look at what the statute actually says. what we've seen is the fcc regulating for the first time in decades, exchange act that services have price regulation out of washington. that is not the direction the fcc is heading, much less the price regulation of zero. these rules the commission came up with probably know less than the extraordinarily intelligent people running the british government 250 years ago, were not intended to create harm.

there were probably widely applauded in london 250 years ago, much as the decisions by the sefcc are plotted in washington today -- are applauded in washington today. people look at these rules and scratch their heads and say, why are we doing this? i think that is the next step. hanns has described this broadband divide. how did we get here and how do we go forward? what is the next step? i hope people listen to what people in rural america have to say to enter that question. >> thank you for those remarks.

our last speaker is the executive director for rural service. >> harold is a tough act to follow. i will talk about our people. i want to talk about some of our people. express cancer awareness month and i have my pin on. i talked to three women in rural america that have to drive several hours. they are driving four or five hours to see a specialist. telemedicine is just huge.

they did not have that in needed access that we would have been urban area. we broad hanns into this. healthier people make healthier communities. that is one area we want to talk about. education. there was a grant for a school that had computers from 1985 in their schools. we heard about the standardized tests and everything coming up online. how can we do that if schools don't have the same computers? the same coming into agriculture. it is about all the applications

that can make things more efficient and productive. everything from looking at cattle online and remote monitoring systems. better economic output for the united states. "america does not move forward by leaving people behind," said one senator. we cannot be innovative if we do not have that technology built out. it is not just about building the networks. it is a moving target. we have a lot of issues to discuss. let's continue to hear what the panel and hopefully you can join

us and ask some good questions to our group. [applause] >> thank you, elisabeth. harold is a tough act to follow. you can submit questions via twitter or by e-mail, as well. let me kick off the discussion with a question. the paper suggests the most likely scenario for the future -- a key assumption is that most of the projects have already been built. do you think this is a reasonable assumption?

who want to take a crack at it? >> i will start. i'll take that one step farther. do i need to push a button? without some kind of change in policy, the gap will likely widen. even though the networks may have been built, they need to be maintained an upgraded. broadband is a moving target. these rural targets are economically viable to build. it is difficult to make them economically viable.

the only reason they are viable is because there has been some support and that is based on what harold and myself has said earlier. a public policy allows some support to be given to these areas so that the customers can afford a voice. >> i unfortunate thing the gap will increase as technology moves forward. leadership will make a difference. just a couple of examples. take electronic health records. often they are, "why am i pushed to do this? it is a pain in the neck and gets in the way of my patients

." it moves to it will miss oriented modality -- moves to wellness-oriented modality. likee looking at things flipping the classroom, a different way of doing education. front-page article in "the washington post" today. you can educate 200 kids at the same time. the challenge is to rethink the way organizations work. a lot of the learning is not education over here and health care over here. it is having them collaborate

and learning with each other. moving from the standardized curriculum to a much more open curriculum. they are very similar changes. you can look at the same thing in public safety and manufacturing and the service sector. the challenge is a leadership challenge, about how they use the technology. >> i would agree. it is hard to look the future and to see the gap shrinking. 10 or 15 years ago, there wasn't that much of a gap. one of the differences with broadband also is the asymmetry

of information flow . with data, it is very concentrated. the flows go from a few areas and distributed worldwide. that creates unique problems and opportunities. >> one of the things that is frustrating for me is that people are doing interesting things. if they do not have the money, that could all change. it could but it doesn't have to. there's a lot there to discuss in terms of what could be done to make this better.

>> let me mention one other thing. when you're constructing these smaller communities, you can often do that for $3,000 to $5,000 per location. into rural areas, it is not uncommon for it to be $10,000 to $20,000. look at the economies and you're comparing a $20,000 location to a -- that is where the challenge comes, how to deploy in regions like that. >> let me go to the audience for questions.

please identify yourself and stay your affiliation if you have one. withm a reporter telecommunications report. the fcc just last year approved what they call copper had to changes in the system -- what they call it changes in the system, going to nebraska where they had a session out there, supposedly meeting with stakeholders and representatives of rural america and other folks that live there and are affected by the policies. they made changes to the system. going forward on broadband. it sounds like there are folks

who are not satisfied with what was done. haven't really heard any discussion except it is not enough. if you could be more specific about what you like about that and what needs to be changed. certain rural carriers have been upset with some of the reimbursement going forward. they might not be able to get, to operate going forward. that has been a handful and i want to hear what your solutions are. what the fcc could have done. >> i will take the first stab. and talkedo the fcc

about some of the issues. we're still locked in a legacy world. i'm a big proponent of change. our system is broken and we need change. there is no doubt about that. the system needs changes. the fcc -- look at it from the small telephone companies vs. the large telephone companies. i'm focused on the smaller rate of return. the reality is that the order keeps them in a voice best centric world -- keeps them in a voice-centric world. the support they receive have to be comparable to what they have

received previously. teh he fcc directed us to provie them with a plan. the plan was largely ignored. the stakeholders were largely ignored but involved in the process. >> harold? [laughter] >> i am letting harold take this one. >> it is hard to know where to begin. i think we should begin with the statute. there are few references to the statute. you mentioned they talk to a lot of people. there are lots of comments in there.

they talk to people not in rural america, as well. it is difficult to see the statute in that order. secondly, on the compensation, this is regulation at its worst. why do we need to go in the direction of price regulation? that is the exact opposite direction the commission has been headed in in decades. the'm mystified by how commission came up with its results. it is difficult from the outside looking in. there is a lot of every nation they have that i did not have any lot of pressures. it is difficult to understand.

the commission needed to come up with a complicated set of rules that create massive uncertainty. the price signal does not exist. it is a terrible rule, set of rules. hundreds of pages that they came up with. i should have stopped earlier. >> i think there is a huge need for innovation in rural areas because the needs are different . they are huge barriers to innovation. >> let me just mention as far as the order goes -- not only did accelerate the decline of support. the amount of money available to

build these broadband networks is going down and now at a faster rate. the fact that the order induced a significant amount of uncertainty in the sense that they have implemented this analysis and you never know if you're hitting a cap that will severely limit your support or not and people are afraid to invest for fear that you're going to hit this cap. once you hit the cap, the punishment does not fit the crime. ut so severely in your support levels. there were some companies in arizona, their support changed by a couple of hundred dollars

per customer per year. >> the analysis changes by the quarter or the year? that itno certainty will be in place a year from now work five years from now. >> look, when telephone companies are hiring armies of economists to help them with regression analysis, there is something wrong in america. you come up with rules that require you to hire economists. they are going to change years from now. is this a way to run a government? i don't think so. >> harold and i could go on all morning on this subject.

it is difficult for these companies to secure capital to invest even if they wanted to. no lender seems to be willing to lend through these companies because nobody sure they will be able to pay back their loans. ask if there any further questions. >> household connectivity. does it make sense to put broadband or increased connectivity to every house in rural america, or can we do the same thing for cheaper through 3g or 4g? >> would be better to do 3g or 4g wireless rather than putting

wired facilities to all these locations? there is a right tool for every job. wallace is not the right tool to provide broadband to homes and businesses -- wireless is not the right tool to provide broadbent to homes and businesses. i have said wireless is not competitive but complementary technologies. they both serve their own purpose. it should be obvious when you look at the wireless carriers, severe caps they put on capacity limitations when you're using a wired wireless solution to get broadband. they always cap it, depending

on how much you're willing to pay. broadbent overrate wireless network is a scarce commodity -- broadband over a wireless that network is a scarce commodity. people are going to need a wireless device and a wire line access at the home if they want to enjoy the broad band of the future. >> i think the market can and will sort that out. we see widespread 4g broadbent speech being deployed -- broadband speeds being deployed and that is all great.

how far that spreads into rural america it is yet to be determined. there is a role for both and they will continue to develop side by side in the market. the market sources should be able to sort out where that goes. >> larry did a wonderful paper a few years ago and we can make that available. a great resource. >> we will take the first question via e-mail. some say urban populations are tired of supporting rural communities. do you have a sense that rural communities are being targeted courses a false impression? >> ron brings up a great point.

people look at it as another tax or something that will add to the national debt, and that's not the case. right now these carriers survive on about $3 billion per year. about $1 billion when it comes to access. to put that in perspective, the two largest carriers in the u.s. had cash flow over $60 billion last year. we're talking about $3 billion that is self funded in the industry to help support these rural customers we have been

talking about. we have lots and lots of urban customers that can pay a couple of pennies more for these were gu rural guys. >> think what ron is referring to is a fund user fee that is attached to interstate telecommunications services. they will show up by your wireless bill and your home telephone bill. it is a program that has grown substantially. the fund was set up in 1997. it was a $3 billion fund or $4 billion fund then. the amount that goes to small

telephone companies is about $2 billion. of the program supported by this are low-income programs, the schools and libraries program, world health care program. -- rural health care program. small telephone companies support mechanism today is not that much bigger than it was 15 years ago. all of the other programs have grown substantially. the user fee that we see is it is too big. this program has grown a lot. the collection mechanism is broken. it is completely broken. the commission should have addressed this years ago. it is amazing that they come up

with more complicated rules for distribution and refuse to address the collection mechanism. >> another question from the audience. then ask a question. >> this seems to be two broadband gaps. one is the urban broadband gap, which has gotten more attention in the media. look at robust broadband access . less than to% of us cannot get robust broadband access -- less than 2%. how do the gaps narrow?

>> typically you're served by fiber or the short copper loops. if you get reasonably high broadbent speech -- you can get reasonably high broadband speed s. the national standard is now 4 meg. it is probably two and a half miles of copper. most areas, it is longer than that and expensive. pushed the electronics closer to the customer, shorten the copper loop, more power and maintenance and those kinds of things. it will take money and a fair amount of investment to make the gap is smaller. >> we have not talked about the geographic areas. i know that larry does a lot

with that and knows some of the challenges of getting the technology to these homes. it can be very challenging from desert areas to mountain areas. there was a bear eating through these lines. these things can affect the quality of the service. something else to think about. >> one challenge is the business model challenge. some technologies work better in urban areas and vice versa. in rural areas, we have seen some interesting advancements with open source business

models where rural residents cooperate to build up their own networks. how do we support this level of experimentation? is it a matter of providing money for telephone companies to use more wires? building and maintaining their networks is a different kind of question. 's when the 1930 networks were put together, they're running wires -- now it requires fiber optic cables to get those kinds of services out. when you put those facilities in, it will run anywhere from $10,000 a mile to $30,000 or more just to construct the

fiber cable. it is expensive for the user to experiment and to provide $3,000 per mile. sometimes you get into places where there are lots of flows or there is protected weeds or protected salmon in the stream. all of those things go to drive up the cost. the labor rate is going up. >> i just want to point out -- there is a huge amount of creativity in our rural communities. if we don't tap into that to solve this problem, shame on us. if we're pushing solutions from dc or atlanta, it ain't goning

ting to work. me ask a question about future broadband. look at the comparison of speed is available from dial-up. a majority of americans have access to a service that is five times the capacity of what was viewed as fast a decade ago. if they continued to get more capacity, what can we expect will happen and what service will look like going forward, say a decade from now? >> if you look at what has been going on, it has been, the increase has been linear on it

logarithmic scale. 20% to 30% increase per years. at that rate, broadband speeds double every three to four years. in my community, 25 meg today. there are reasonable services by two different providers. you can get 70 to 100 meg in my small community. i think most urban areas would be comparable. if you do not have 100 meg, you're probably behind. google is going after one gig.

whatever your guess is probably too low. you sit down and say, what do we need 100 meg for? a lot of this stuff that drives the band with having been invented yet. if you wait to deploy your network when the technology is invented a comeback to build the bridge, if you wait until you see the demand, you are too late. building these networks is a multi-year process for these companies to do because it is so capital intensive. you wait for the application and you're already too late. >> we see evo and 4g squeezing a

bandwidth.han wit fiber is always going to have more capacity and more flexibility as far as costs. you are switching out the electricity. those without fiber will be at a disadvantage when it comes to the gap on speed. places that have it can jump faster and faster. the advance in a band with is going to be slower. >> let me ask a question. we have seen the potential for various problems to be solved

changes because technology adapts and there are deemed changing technologies that nobody expects. this has opened up possibilities that no one could have anticipated two generations ago or a generation ago. what is the potential for new technologies to help make up the gap? how might that affect things at end?world level at the top an what other constraints would keep some kind of solution from being feasible. >> this goes to the core of my concern about rural areas. they have a different set of solution sets. if he did not have the toys to

play with, you can figure out what to do with them. that is part of what we see in urban versus rural on the applications side. we have seen a huge amount of innovation from rural areas in the past. if you do not have the capacity to play with and the kind of technological and the knowledge components that you need for that, it will be slow to emerge, and that puts the u.s. economy at a disadvantage on the global stage. creating these rural laboratories and learning environments is incredibly important. >> as far as innovations that we could see on the horizon that will be game changer, we will

not violate any laws of physics in the process. when it comes to wireless, you have rules that dictate how much information can flow through any information channel. right now 4g is getting very close to shannon's law. the only you'll solve the problem is more spectrum or more towers. , it landmine perspective, there is a lot of innovation going on -- from a lan my perspective -- perspective,idmine there's a lot of innovation is going on.

most of the investment is in the cable. most of the cost is the labor to put the cable in the ground. i do not see a lot of technology that will reduce the cost of deploying that fiber because it so heavily dictated by the labor associated with getting in. the cable itself will not be decreasing in cost. we may see some changes in costs under the electronics. they will get changed out every five or 10 years anyway, because of those advances. they are a small portion of the overall cost. >> in terms of technological

terms, more than a few years. i think the current situation was difficult to anticipate 10 years ago. the commercial internet which is getting off the ground. technology is changing pretty rapidly. but the broad sweep of economic history. some technologies have been adopted in rural america -- the automobile and the truck. other technologies such as rail and air transportation could bypass parts of rural america. it is hard to know how to look commissions -- it is hard to know how telecommunications networks will evolve over time.

it is hard to see those. you never know. they may be out there. >> if everyone had invested in apple, we would all be much wealthier. whenever the next big thing is, the will not be enough to handle it. a bare minimum it is unacceptable. help usno way that will through the next step, whatever it may be. >> hanns. >> it is preparing the paper, one of the thoughts that emerged was the frustrating problem of -- it is only one

metric you have. we saw in the density graphs -- one line doesn't capture it. in the health-care sector, a lot of this -- a big part of the challenge has less to do with small towns and with even more remote things, things you might call frontier. we would have a better understanding of what was going on. i heard some confirmation in the discussion of the panel and maybe you could tell me i'm right and i can sit down. >> when you get a cluster of

homes, it might be a town resident, 700 people, 800 people. oftentimes i talk about urban versus rural. the town is a cluster around the central office of the telephone company. you have to go a fair amount of distance to get to some people to serve. the economics are different for each. >> going back to the question on innovation. in some areas, we don't know what the technology is. robotics, simulations. where do they fit into the equations? there is a huge seas of data in

the service sectors and environmental monitoring. this is one set of technologies. robotics will not be all that unusual to see it robot going down the street. tractors are essentially robots. if point i'm making is you're pulling all this data out of rural areas and you have some devices that are operating out there, does that count as density? you need to pull this data out and to send it back.

>> you're exactly right. you can look at an urban area and the availability of 100 meg, one gig of data. in concentrated towns in rural america where there might be a hospital or large educational institution, you may have 100 meg of data available. in the surrounding community, there may be little or no high- speed broadband available and that is the challenge. are there problems with that? >> let me ask one last question . if there's one thing you could change if you were appointed

emperor for a day, will each reviewed do? one policy you could change. >> i will leave it to these guys on the policy side. >> go ahead. >> there is so much i would change. i do not know where to begin. >> from a high level, i kind of said it when i gave my opening remarks. we need to migrate from these small carriers to wait broadband-centric support world. that is the communication medium of the future and it needs to be and some form comparable to what it has been in the past. if we want to see the same

success, getting broadband out to everybody and assuming the cost is comparable. the cost is about the same regardless of the type of wire. migrating to broadband with it mechanism that is comparable to historical levels. >> if i had my magic wand, i think what i would wish for is a public-private partnership driven by technology companies, who will and apple and amazon to the small local technology companies -- google and apple and amazon. incredible solutions that are not being used in rural areas. it would benefit folks in rural

areas by improving their -- it would benefit the technology companies by creating a market. the three legs of the stool include the world leaders. i think the third leg is higher education at the universities with a tradition of outreach. they have to have a better mechanism to get out there and provide the trusted information. they are not there to sell anything. that would be transformative. >> i do not want to get into changing policy.

folks in rural america do need this technology. it is not just a luxury. these folks needed as much as anyone if not more. this is something that has to happen. i appreciate having these experts here today to bring home a little more. >> we have one last question. this is a controversial one. we have to throw it out. how much money in the 2009 recovery and reinvestment act make a difference in overall broadband? silelnce. nce. >> that is a tough one.

he breakdown, reak doje would imagine it was more than half based on how much was allocated -- they had $2.5 billion of it. mtia -- probably a half or better of the $7.2 billion went into rural areas. have you seen any statistics like that? >> look, the premise of the stimulus was you could have a one time infusion of capital investment. it was it one time infusion.

maybe some of that could have worked. there was a complicated application process. extraordinarily complicated. all kinds of rules about has you had to do woulit. um were not happy with the process -- some were not happy with the process. some returned the money. it has been an extraordinary challenge to be an operator in rural america whether you're a small or midsize company or a large company. this is what i begin to describe as unintended consequences. there was a good set in tensions with the stimulus program. what